To The Moon

U.S. long-term Treasury bonds suffered a significant setback on Tuesday. Following former President Trump's announcement of plans to impose an additional 10% tariff on imports from eight European countries starting next month, investor concerns over trade and geopolitical risks escalated rapidly, triggering a wave of selling in U.S. government debt. This development led to notable volatility in the approximately $30 trillion U.S. Treasury market. During New York trading hours, the yield on the 10-year Treasury note surged by as much as 8.1 basis points, reaching an intraday high of 4.31%, before finally settling at 4.29%, marking its highest level in five months. The 30-year bond performed even more weakly, with its yield climbing to a peak of 4.95% during the session and closing at 4.92%, a high not seen in over four months, and recording its largest single-day decline since July 11. Given that bond prices move inversely to yields, the sharp rise in yields indicates concentrated selling pressure for Treasuries of those maturities. Market participants noted that investors are using the bond market to express anxiety over multiple uncertainties involving the U.S., Europe, and Japan, worrying that the trend of "selling U.S. assets" might persist and potentially trigger a chain reaction similar to the 2022 UK gilt crisis. Europe is a major holder of U.S. Treasuries, with the Eurozone, combined with Belgium, Luxembourg, and Ireland, holding a combined total of over $1.5 trillion in U.S. debt. Against this backdrop, European investors reacted coolly to the latest trade measures. Among them, Danish pension fund AkademikerPension plans to exit its U.S. Treasury holdings by the end of the month, with its Chief Investment Officer, Anders Schelde, stating to media that U.S. "credit is not ideal, and government finances are unsustainable in the long run." The rapid breach of multi-month trading ranges by the 10-year and 30-year yields suggests that borrowing costs—from mortgages and consumer loans to corporate debt—could face upward pressure, although the intensity of the sell-off moderated somewhat in the afternoon. Ipek Ozkardeskaya, a senior analyst at Swissquote, pointed out that the jump in the 10-year yield above 4.25% was partly fueled by market speculation that Europe might "weaponize" its U.S. assets in response to Trump's aggressive trade and geopolitical stance. She estimates that Europe collectively holds about $10 trillion in U.S. assets, of which approximately $6 trillion is in U.S. stocks; while large-scale selling could impact U.S. markets, it would also mean European investors would incur significant losses themselves, making it an unrealistic short-term prospect. Tom Nakamura, Head of Fixed Income and Foreign Exchange at AGF Investments in Canada, stated that the U.S. Treasury market often acts as a "lightning rod" for various viewpoints during periods of stress. He identified two key catalysts for the current volatility: first, the controversy surrounding Trump's pursuit of Greenland from Denmark has sparked new tariff threats, briefly intensifying growth concerns and raising expectations for policy easing, while simultaneously amplifying long-term inflation and fiscal risks, leading to a steepening yield curve; second, the Japan factor is equally critical, with markets watching whether Prime Minister Sanae Takaichi can introduce large-scale stimulus. In Japan, the yield on the 40-year government bond rose to 4.215% on Tuesday, reaching a record high since its inception in 2007. Pooja Kumra, European and UK Rates Strategist at TD Securities, said that the "shock" from persistent pressure on ultra-long-term Japanese government bonds is transmitting to global interest rate markets, with de-risking and margin calls remaining realistic risks that could trigger a broader market reaction, a scenario comparable to the 2022 UK gilt crisis. Despite this, analysts generally believe that a single day's volatility is insufficient to undermine the long-term appeal of U.S. Treasuries. Nakamura emphasized that the U.S. Treasury market remains the world's largest and most liquid market, playing a core role in the functioning of the financial system; even as marginal concerns rise, a prolonged and sustained sell-off of U.S. debt would still be a lengthy process.